Daily Management Review

China Cue and World Market Fall Causes US Markets to Start in the Red with a Late Recovery


China Cue and World Market Fall Causes US Markets to Start in the Red with a Late Recovery
Rule 48 had to be invoked at the New York Stock Exchange after its futures markets opened to very intense selling on Monday. Rule 48 allows the NYSE to begin trading in stocks without providing indications.
These were a result of the worldwide crashing of the markets on Monday that send ripples across the US markets also.
The selling was primarily sparked off by the mounting worries over the potential impact of a slowing Chinese economy on the emerging economies. The 'limit-down' level was attained by the Dow Jones, S&P 500 and Nasdaq futures and the futures trading had to be halted on these indices s all of them kept falling below their daily limits. This system does not stop trading but acts as a circuit breaker to give the market a chance to take a breather for a few minutes.
Circuit breakers of 7% and 13% were set for the for the Dow, 5% for the S&P and Nasdaq by the NYSE. As the September 100 futures set off the 'circuit breaker' three times after falling 5%, the daily loss limit, Nasdaq futures trading had to be halted three times.

However during the day, there was reason to be happy that the initial fall was not sustained and the three major US stock indices are all down by less than 2% which was a better performance when compared to the market panic in Europe and Asia.
The Dow Jones fell by 1.93% at 16, 140 points and was the biggest faller, followed by the Nasdaq that was down by 1.8% at 4,621 points and the S&P 500 index was off by 1.49% at 1,941 points.

The fall in the American market, the last major market to react throughout a particular day of business, was a direct fall out of the plunge in the world stock markets as the major markets saw substantial shedding of profits and points. For example, China, the second largest economy of the world, recorded a 9 percent dive in its market on Monday.
The dollar also depreciated sharply.
Wall Street opened with a drop of more than 1,000 points that is equal to almost 7 percent. Dow Jones and Standard & Poor's 500 index also suffered in the milieu.
For the first time since 2009, the CBOE Volatility Index or VIX, a key measure of U.S. equity volatility, shot above the 50 mark.

“Anybody with a pulse was nervous when the market opened. We're still going to see significant price swings both up and down before the day ends today," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“The only thing that's certain is the volatility is going to continue in the short term, given the magnitude of the moves that we've already had in the last four days," he added.

On the other hand the stocks in Europe too slumped by 5.4 % at close of the day following a three year low in the Asian stock markets. the prices of crude oil also plunged to reach six-and-a-half year lows last week.

(Source: www.theguardian.com, www.reuters.com & www.digitallook.com)